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The Cost of Immediacy for Corporate Bonds

Publication: Research - peer-reviewPaper

Liquidity provision in the corporate bond market has become significantly more expensive after the 2008 credit crisis. Using index exclusions as a natural experiment during which uninformed index trackers request immediacy, we find that the price of immediacy has doubled for short-term investment grade bonds, and more than tripled for speculative-grade bonds. The increased cost of immediacy is a side-effect of a ban on proprietary trading (Volker Rule) and tighter post-crisis capital regulations, which have resulted in lower aggregate dealer inventories.

Publication information

Original languageEnglish
Publication date2016
Number of pages42
StatePublished - 2016
Event - Paris, France

Conference

ConferenceThe 14th International Paris December Finance Meeting
Number14
CountryFrance
CityParis
Period20/12/201620/12/2016
Internet address

    Keywords

  • Dealer inventory, Lehman/Barclay bond index, Market making, Transaction costs, Dodd-Frank Act

ID: 45578774